PROCEEDINGS OF THE 7th INTERNATIONAL MANAGEMENT CONFERENCE
"New Management for the New Economy", November 7th-8th 2013, BUCHAREST, ROMANIA
INCREASING THE ROLE OF THE FUNCTION OF ENSURING MATERIAL
RESOURCES AS AN ACTIVE PARTICIPANT IN THE DEVELOPMENT OF
STRATEGIES UNDER CURRENT CONDITIONS
Gheorghe CÂRSTEA 1
Oana PĂUN 2
ABSTRACT
In a complex and unstable environment, based on increasing risk levels and uncertainty, the
function of ensuring material resources must be integrated into the strategic business and add value
to the respective organization.
Without an efficient and effective function of ensuring material resources, the organizations will not
be able to provide the required products under the required conditions and prices, at the customer’s
desired place and time, thus failing to become competitive.
The objectives and contents of the strategy of ensuring the material resources must be integrated
into the overall development objectives and strategies of the organization, in order to contribute to
its success.
KEYWORDS : insurance function, resource materials, strategic role, strategy
JEL CLASSIFICATION : L22, M19, O12
1. INTRODUCTION
In the last few years, the producing companies confronted with extremely difficult problems,
mainly caused by the economic instability, inflation, shortage of the product’s lifecycles,
environment protection, change in market requirements and diversification of the demand. All these
problems are impediments in finding the most efficient and efficacious way to organize and deploy
their activity.
In the actual conditions, the majority of the organizations are focusing their attention to the clients
and satisfying their demands while maintaining a good profit is crucial for each organization’s
existence. The deployment on good terms of an organization’s activity and the fulfillment of its
strategic objectives is conditioned, on the one hand, by the ensuring of a certain quality and quantity
of the material resources, in the place and the time limit required by the consumership and on the
other hand, by the commercialization of the products resulted from its producing activity because
selling the products is a necessary prerequisite for producing more. The company can’t function
without the clients, or the suppliers. Each depends on the other, so the managers’ efforts, their
competence and their attention must focus on both sides. The activity of ensuring the material
resources must be monitored and managed with the same efficiency as the activity of selling
products.
Under the pressure of the internal influences, like the increasing of the level of the expenses with
the raw materials and with the materials acquired from the outside, the high percentage these
1
The Bucharest University of Economic Studies, [email protected]
The Bucharest University of Economic Studies, [email protected]
2
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PROCEEDINGS OF THE 7th INTERNATIONAL MANAGEMENT CONFERENCE
"New Management for the New Economy", November 7th-8th 2013, BUCHAREST, ROMANIA
resources represent out of the company’s total costs , the installation of some integrated systems,
the function’s importance in ensuring the material resources increases.
The role of the function of ensuring material resources is that of achieving a balance between the
needs and the availability of material resources, for the organization to be able to deploy its activity
in optimal circumstances. In order to do that, three stages must be covered, which are (Fundătură,
2005, apud Papari, 2007, p.12):
‐ upstream activities, representing activities regarding the ensuring with the material
resources;
‐ production activities, represented by the processing and by passing from the stage of
supplying to the one of realizing new products;
‐ downstream activities, meaning activities of finalizing the processing cycle of the material
resources and of delivering the end products to the market.
As it can be noticed, the upstream activities (of ensuring the material resources) can be undertaken
according to an integrated and dynamic vision, thus solving of the problems faced by the
organization in the circumstances of an economic crisis, leaving aside their contribution to the
added value given to the whole supplying chain.
2. THE STRATEGIC ROLE OF THE FUNCTION OF ENSURING MATERIAL
RESOURCES UNDER CURRENT CONDITIONS
2.1. The evolution of the function of ensuring material resources under current conditions
Under current conditions, the function of ensuring material resources must have a crucial strategic
importance. The role and the contribution of the material ensuring process gradually increased; the
emphasis laid on its importance and acknowledgment can be explained giving several reasons.
Some of them will be specified below:
‐ the great percentage of the material resources out of the total production cost ( 30-70%)
‐ the significant increase of the external expenditures as a result of a rising specialization
‐ the increasing interest of finding some external suppliers
‐ a focus on the supplying chain and therefore on the process of material resources ensuring
because of emerging new ideas regarding the product quality and the avoiding of wasting
resources
‐ the example of good practices given by the leading organizations which can be lately
distinguished through a strategic approach of the material resources ensuring process
‐ the necessity of increasing the flexibility and the receptivity of the organizations that can
comply with this requirement only if their suppliers surface the same characteristics
‐ the clean-cut delimitation of the contribution of the material ensuring process by using
highly advanced informational technologies.
In spite of the fact that 2009 (the year in which the economic crisis began) represented, according to
the analysts, the year in which the sellers’ market was replaced by the “buyers’ market”, and, in the
war between the supplier and the buyer, the power given to the later increased, the acquirers having
to struggle a lot, because of the constant pressure exerted by the top management, in order to
determine them to obtain competitive discounts and due dates in the best possible circumstances. In
the same time, the suppliers tried to convince them to buy as much as possible, to increase their
backlog of orders (in the context in which the demand was decreasing significantly), but in the same
time to maintain their due dates, being pressed by cash-flow problems.
Under this extreme pressure, many buying organizations weren’t capable to accomplish their goals,
both out of objective reasons, but also due to some errors generated by the lack of adequate analysis
tools, or by the ignorance of some specific methodology that must have been used at that time. This
way, it can be noticed (Spiridon, 2013) an incapacity to focus on the relevant aspects, an
insufficient preparation for a negotiation with the suppliers and the lack of a deep analysis before
deploying a new product.
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PROCEEDINGS OF THE 7th INTERNATIONAL MANAGEMENT CONFERENCE
"New Management for the New Economy", November 7th-8th 2013, BUCHAREST, ROMANIA
The incapacity to focus on what really matters is usually a characteristic of the organizations with
an extended product portfolio and with many suppliers. The lack of a clean-cut segmentation of the
product portfolio and of the identification of those products for which there must be signed
partnerships led to consuming the organization’s resources in less profitable areas.
The insufficient preparation for a negotiation with the suppliers, the lack of a well-documented
analysis, diminished the chances to convince the suppliers to grand them some supplementary
facilities (for example, involving in promoting some products that had a high profit potential).
The lack of a deep analysis before deploying a new product resulted in the disappearance of a
significant percent of the products launched on the market.
The resources ensuring function plays a very important role in creating and deploying of new
products. Due to the advances in the scientific development and in the top technologies, the
products’ lifetime has decreased. In a strong competitive environment, demand-dominated, it’s
more and more important to use some innovative, high quality raw materials; only this way,
manufacturing new products will be successful from the very start, this products addressing exactly
the market’s needs. At the same time, the resources ensuring function plays a crucial role in
revealing information about the novelties in the suppliers’ market. Due to the specialization, the
majority of the new products are being developed more likely as a result of the innovations brought
to the supplying market, and less due to the research and design of the producing companies. The
faster these items of information become available, in other words the tighter the relations with the
suppliers prove to be, the easier the companies will be able to have the best of their competitive
advantages.
While the supplier play an important role in informing the potential user about the novelties from
the market, the buyer has a key-role in identifying the innovations from the suppliers’ market, being
even able to play an active role in promoting these innovations. The material ensuring function must
involve in the activities of planning and development of the organization’s policies when they infer
decisions related to the new products development, the long term economic availability of the raw
materials and the price fluctuations.
In this current crisis context, the effectiveness of the material ensuring function will depend on its
development stage, in other words, of the type of function it will be: administrative or strategic,
reactive or pro-reactive. An underdeveloped function, reactive, cannot bring an authentically
strategic contribution.
Therefore, the companies must renounce to the simplistic approach of the material resources
ensuring activity, according to which this function only refers to the action of buying goods and
services at a low cost, the company having to choose from various suppliers.
This approach to the material resources ensuring is known as the “transactional approach” and it’s
grounded on the theory that the supplying activity is limited to simple exchanges, in which the
buyer and the supplier interact according to hostile, somewhat opposite ground rules. According to
this perception, the buyer’s main interest would be to acquire as many resources as possible, paying
a minimal sum of money (Baily, Farmer, Jessop & Jones, 2004). In the current context, “the
transactional approach” can’t be thought to be an adequate perspective from which to analyze the
majority of the company’s expenses regarding the material resources ensuring. Therefore, the
company must focus on creating a relationship of reciprocity between the supplier and the buyer, on
the actions undertaken together to obtain a satisfying result for both. Both partners must invest a lot
of effort and trust, to identify the common interest in their desire of obtaining added value, a
process which would be impossible in the case of the “transactional approach”.
It’s a known fact that the developing of a partnership relation between the consumer and the
supplier can’t be always attained and it wouldn’t be efficient for all the resources and all the
suppliers. The types of resources suitable to establish a partnership strategy are “the strategic
resources”, their main characteristics being (Cârstea, 2000): a great economic importance and a
heavy risk when it comes to their availability on the market.
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PROCEEDINGS OF THE 7th INTERNATIONAL MANAGEMENT CONFERENCE
"New Management for the New Economy", November 7th-8th 2013, BUCHAREST, ROMANIA
In this case, the method “acquisition positioning” (Krajlic, 1983 apud Baily, Farmer, Jessop &
Jones, 2004), illustrated in figure no. 1 is extremely useful when it comes to identifying the
products and the suppliers for which it would be best to be established partnerships.
The ordinate (the y-coordinate), called “risk”, relates to the risk taken by the buyer in case in which
the supplier isn’t able to deliver the product or the service in due time, or of a failure in supplying.
The abscissa (the x-coordinate), called “potential effect on profit”), shows the amount of the
potential contribution of the material resources ensuring function to the profitability of the client
organization. The potential profit can be achieved either by paying a lower price, or by employing
more efficient supplying methods.
Studying the graphic representation it can be noticed that, while the buyer takes advantage of the
materials or the suppliers’ positioning in the “lever” category, the supplier wants to sells the
products which are positioned in the “critical” category. It can be easily inferred that there isn’t
such a thing as a unique, perfect method of approaching the relationships with the suppliers: “the
transactional approach” can prove to be adequate for the daily, routine, acquisitions, while the
“strategic approach” shows some real advantages for a reciprocity relationship when it comes to an
extremely important sector.
Risk
Deadlock (relationships) sector
Ex.: A patented replacement part, the
necessary specialty counseling
Critical ( relationships) sector
Ex.: Crucial subassemblies for an auto
manufacturer, engines for an airline
Routine ( relationships) sector
Ex.: Common stationeries, industrial
locking systems, mass-produced and masscommercialized
“Lever” (relationships) sector
Ex.: Paper stocks for a typography,
chemical daily use products
Potential effect on profit
Figure 1. The “acquisition positioning” method
Across the value chain, the material ensuring processes represent a good opportunity for
optimization, now that these processes’ globalization resulted to an increased competition regarding
the prices. In many cases the supplying potential is being underestimated, due to a lack of
transparency of these processes and due to the insufficient evaluation of the costs of the material
resources ensuring, many organizations claiming they were satisfied with the buying prices.
The total supplying cost represents more than a simple price, even if the price is the most visible
and the most important component of the total cost. An important factor that influence the total cost
is represented by the bought technical parameters. The material ensuring function, corroborated
with the production must give vital information about the constrains, the opportunities related to the
technical product parameters and about the delivery possibilities.
Another factor that influences the total cost is represented by the stock level. In a crisis and inflation
context, it’s necessary to evaluate the suppliers’ market, in order to ensure the raw materials and the
necessary materials for the production activity. In the same time, there must be taken into
consideration the price fluctuations, the product availabilities, the physical and financial resources.
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"New Management for the New Economy", November 7th-8th 2013, BUCHAREST, ROMANIA
In order to increase the performances of the material resources ensuring process, the company must
appeal to the most modern methods related to the materials’ management and the current trends
from the international markets:
‐ putting in practice some integrating ideas and methods ( establishing partnerships with the
suppliers in order to obtain advantages in material resources ensuring, the evaluation
through comparison of the best practices, total quality management, integrated systems like
JIT, client-orienting)
‐ assigning some stages from the material resources ensuring process to the suppliers;
‐ risk management in the supplying chain ( including the risks regarding the increased outage
of the technical and economic knowledge, the availability and the prices)
‐ identifying the “price-establishing chains”, for a correct assessment regarding the concrete
possibilities of establishing a certain price, getting rid of those intermediaries that don’t
create an added value, their role being limited to increasing the price
‐ organizations’ specialization in a limited activity area, needing to buy a part of the necessary
resources from the people with a highly specialized experience and design rights regarding
complex or advanced technologies
‐ increasing requirements regarding the ethical and the ecological aspects of the material
resources ensuring process ( concern regarding the impact of the waste products and the
remnants, recycling packages, etc.).
‐ governmental and European Union policies which restrict the freedom of decision regarding
the policies and the practices related to material resources ensuring.
2.2. Strategic aspects of the function of ensuring material resources under current conditions
To reach the goal and to balance the objectives of the function of ensuring material resources with
the general objectives of the organization it must be elaborated a strategy meant to make the activity
efficient for a long term. (Deac et al.,2012).
The environment influences the strategy chosen by the organization. In the current crisis context,
the material resources ensuring strategy must have in view the strong points’ exploitation and
capitalization, in order to take advantage of the opportunities, and the diminishing of the
weaknesses’ results, in order to neutralize the menaces. In a complex and unstable environment,
characterized through an economical-financial crisis, the decisions regarding the material resources
ensuring necessitate the most complex informing and the most solid analysis of the circumstances in
which these are to be taken. Thus, the elaboration of a strategy related to the material ensuring field
allows adopting these decisions only when it’s being reached a total knowledge of the factors that
influence this process and of the most convenient supplying possibilities.
In order to analyze the strategy’s role in material resources’ ensuring, the strategy must be defined
in the first place. The organization’s strategy is defined by all the actions undertaken in order to
establish the organization’s fundamental objectives, the means of achieving these objectives (the
strategic directions), the actions undertaken to assign the necessary resources, the priorities and the
way it answers the environmental changes, all these being undertaken in order to obtain the
competitive advantage and to fulfill the organization’s goal. (Nedelea et al., 2008).
In the past, the material ensuring process tended to involve more in operational activities and less in
strategic ones. In the current economic context, the material resources ensuring must partake more
and more at the process of taking the tactical and strategic decisions. We can enumerate the
following reasons regarding the involvement of this function in the strategic, decisional process:
‐ material ensuring process is a field in which there can be obtained cost cuts and, even more
than this, an added value related field;
‐ the speed with which the technologies and the products are being developed necessitates a
management team capable to cover all the organization’s functions, ready to adopt a
process-related management method, not a functional one;
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PROCEEDINGS OF THE 7th INTERNATIONAL MANAGEMENT CONFERENCE
"New Management for the New Economy", November 7th-8th 2013, BUCHAREST, ROMANIA
‐ the evolution toward holistic-like methods, capable to integrate the external and internal
processes, in order to optimize them and to make them as efficient as possible ( MRP
method - Materials Requirement Planning, ERP system - Enterprise Resource Planning,
EDI system - Electronic Data Interchange, concepts related to the supplying chain theory –
value flow, transmission channels management);
‐ the cost cuts, by getting closer to the suppliers;
‐ the need to lay emphasis as much as possible on the strategic costs of the material resources
ensuring function and less to the short term prices;
‐ the increase of the expenses related to the ensuring of material resources from the outside
and their impact over the profit;
‐ the desire to get closer to the Japanese model, which has perceived this activity as an
important strategic activity and which proved to be efficient.
In the current economic context, one of the main problems which the organizations face is the
incapacity of the material resources ensuring process to play a proactive strategic role. The
managers must have in mind that not only the sale markets need a strategic approach, but also the
ones related to the material resources ensuring, as they offer opportunities whose exploit can lead to
competitive advantages. In what concerns the competitive advantage, in the material resources
ensuring field there are to be exploited those possibilities of valorizing the price related advantage,
the producer-intermediary-organization flow and of obtaining some advantages the competition
can’t obtain. (Deac et al., 2012).
A weak function, reactive and administrative can’t possibly bring authentic strategic contributions.
More than that, the traditional management, which used to function according to functional criteria,
can generate territorial conflicts and lacks efficiency, because each function tends to reach its own
objectives, without having in mind the other functions’ objectives. Therefore, there must be
established the developing stage of the material resources function and its development must be
outlined. According to the new managerial concepts, this activity must be organized according to a
processual method, involving team work techniques and the permanent monitoring of the
established objectives, while appealing to integrated management methods and renouncing to the
methods addressing to each organization’s segment. The processual structure represents a more
rational and efficient method to approach the flow of resources that enter the company, transform
themselves and leave it, this way maximizing the added value and minimizing the costs. This type
of structure lays the emphasis on the global efficiency and, taking this approach, the chances to
integrate all types of company’s strategies increase.
In order to elaborate and select the strategy to be employed, it must be established a frame of
reference based on various factors, like: the organization’s position in its supplying chain, other
organization’s strategies, the competition’s position in the supplier’s market but in the same time on
the end consumer market, the number of the efficient sources from the material resources ensuring
market, aspects related to the suppliers’ development, the market’s development tendencies, the
implications brought by the decisions of producing or supplying, the informational systems
development, the rhythm of the technological development on the two markets, the company’s
capacity to design a strategy.
For a greatest efficiency of the material resources ensuring strategies, they must be grounded on
complex analyses, on comparing the possibilities, on a detailed planning of the way they are to be
put in practice. Due to the fact that, generally speaking, there aren’t some immutable rules on the
market, these tasks can be achieved only with the involvement of the best executive officers, being
imperative for the professional purchasers to allot the proper resources to the strategic aspects. In
fact, the way in which a company perceives its own qualities and flaws shows its vision related to
its own force position in relation to the other actors involved in the market. Its capacity to perceive
both the opportunities and the menaces and its capacity to find the proper strategies to gain a
balanced position in the market are aspects that lay a good foundation for its success.
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"New Management for the New Economy", November 7th-8th 2013, BUCHAREST, ROMANIA
There are various strategic positions that a company can appeal at, but none of them can secure its
success. The types of strategies below can be a good start: (Papari, 2007):
‐ strategies related to the actual process of material resources ensuring – everything related to
prices, quantity, due terms, quality, etc.;
‐ strategies of decreasing the costs related to the material resources ensuring field –
acquisition costs, stock management costs, supplementary processing costs, etc.;
‐ strategies of anticipating the environment evolution and strategies related to taking the
necessary measures to adapt to the new contexts, without delays;
‐ communication strategies, meant to warrant an efficient supplier- buyer relationship, both
exploiting all the advantages this relationship involve.
As it was highlighted above, in order to elaborating a material resources ensuring strategy, the
company must analyze several factors that operate at the organization’s level. These factors differ
according to the branch and the organization they operate at.
A factor that should be common to all branches and organizations is the need to discover all
the advantages the competition doesn’t have and of efficiently exploiting them.
3. CONCLUSIONS
In order to overcome the current crisis, the material resources ensuring process must be totally
prepared to contribute to generating new ideas and practices, in a fast and efficient manner,
exploiting the advantages the competition can’t take. To meet this condition, both the interface with
the rest of activities inside the organization (activities related to production, marketing, financial
activities, etc.), altogether with the interface with the organization’s suppliers and clients.
It’s crucial for the managers to focus their attention over the development of the method of
approaching the suppliers, the negotiation of the long term relationships, perfecting the supplying
chain and decreasing the total costs, but also over a proactive, long-term approach, suitable for
meeting the future demands.
In an environment in which the risk taken and the uncertainly degree is higher and higher, an
organization’s ability of elaborating and applying strategies, including the ones related to the
material resources ensuring depends, mostly, on the approach of the managers, the experience and
the organizational culture. All these factors will influence the efficiency of the adopted strategies.
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